Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Stock Yards Bancorp in Focus
Based in Louisville, Stock Yards Bancorp (SYBT - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 3.32%. Currently paying a dividend of $0.23 per share, the company has a dividend yield of 2.36%. In comparison, the Banks - Southeast industry's yield is 1.16%, while the S&P 500's yield is 1.77%.
Looking at dividend growth, the company's current annualized dividend of $0.92 is up 15% from last year. In the past five-year period, Stock Yards Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.67%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Stock Yards's current payout ratio is 43%. This means it paid out 43% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SYBT for this fiscal year. The Zacks Consensus Estimate for 2018 is $2.39 per share, with earnings expected to increase 25.13% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that SYBT is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).